The World Bank has announced a Development Policy Loan (DPL) of $1.5 billion to support South Africa's infrastructure modernization efforts. This initiative aims to address critical structural reforms to enhance the efficiency, sustainability, and climate resilience of the country's infrastructure services, contributing to inclusive growth and job creation.
South Africa faces significant economic challenges, with unemployment exceeding 31 percent and GDP growth averaging below 1 percent over the past decade. Structural barriers such as weak governance, limited competition, and skills shortages have hindered progress. In 2023, power outages reduced GDP by 2 percent and resulted in the loss of 500,000 jobs. Rail and port inefficiencies further impacted exports by approximately 20 percent.
The South African government has initiated key reforms with support from the World Bank and other partners. In energy, the 2022 Energy Action Plan opened the sector to private investment and improved regulation. The 2023 $1 billion Energy Transition Development Policy Loan supported these efforts, leading to increased energy availability from Eskom's debt relief measures. The World Bank-backed Freight Reform Roadmap of 2023 aims to improve logistics and stabilize Transnet’s finances.
This DPL builds on previous initiatives like the South Africa COVID-19 Response Development Policy Loan approved in January 2022 for $750 million and the Sustainable and Low-Carbon Energy Transition Development Policy Loan of $1 billion approved in September 2023.
The operation focuses on three main objectives: improving energy security by facilitating investments into transmission; enhancing freight transport efficiency through regulatory changes; and promoting a low-carbon economy transition using fiscal instruments while protecting communities affected by these changes.
Energy sector reforms aim for a reliable electricity supply by transforming Eskom's monopoly into a competitive market structure. This includes strengthening transmission systems, attracting private investments in transmission lines, enabling distributed generation investments, and improving municipal electricity distribution through smart metering.
Freight transport sector reforms focus on unbundling Transnet to create a competitive market structure with fair access for private operators. These measures are expected to increase rail network capacity significantly by 2027.
Together, these reforms could boost short-term GDP growth by up to 1 percent and medium-term growth by up to 3 percent. Job creation is projected at around 250,000 jobs by 2027 and potentially reaching half a million by the early 2030s.
This operation aligns with broader World Bank Group efforts supporting energy reforms in South Africa alongside other financing tools from IBRD, IFC, and MIGA aimed at improving electricity distribution performance in metropolitan municipalities.
South Africa's macroeconomic framework is deemed adequate for this operation due to prudent fiscal policies and structural reforms that mitigate debt sustainability risks through favorable debt composition primarily held domestically.